PSU Banks to see increased lending reserves
By Vaibhav Aggarwal
Jan 7, 2009
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Loans might ease up in the coming times as Rs. 56,000 crore are likely to be added to the lending reserves of public sector banks over the coming three months.

The government is eager to review country's growth and therefore it is pushing banks to raise their flow of funds to the different segments of the economy. In fact banks have raised their credit target for the remaining part of the fiscal from 20% to 24%.

An official from finance ministry said, "Credit targets of public sector banks are being revised upward to reflect the needs of the economy in the present difficult situation. Government will closely monitor, on a fortnightly basis, the provision of sectoral credit by public sector banks."

Bankers in the industry feel that as interest rates is declining, banks would have more liquid funds and at the same time demand is also likely to mop up.

In the latest move by RBI, cash reserve ratio (CRR) which the mandatory portion of deposit that banks need to park with the RBI, has been cut by 50 basis points to 5%. This reduction has injected Rs 20,000 crore into the system.

Besides the key policy rates - repo and reverse repo rate - have also been cut by 100 basis points each to 5.5% and 5% respectively. RBI has been relaxing monetary measures since October to ease the liquidity conditions in the economy and therefore has infused 3,20,000 crore into the system since then.

Meanwhile to ensure enhance lending to the housing sector, banks are also reassured by an easing of risk-weightage norms.

Chairman and Managing Director of Bank of Baroda, M D Mallya said that liquidity was no more a constraint. "We will review our credit target. The earlier target was fixed kept in mind the high inflationary pressures on the economy but now the scenario is different and we will increase our lending figures," he said.

A senior executive from UCO Bank said, "Banks will have to meet the revised target by the end of the current fiscal and therefore they will have to significantly step up their lending."

The liquidity in the system has been eased by a substantial amount as both RBI and Government has taken several measures to increase the flow of funds and support the ailing sectors of the economy.


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